Thoughts on Politics, Technology and the world around us

On Innovation in the Oil Sands

I don’t often post on the industries in which I work, but I felt this week like I should. Outgoing Total E&P Canada president Jean-Michel Gires said at the end of 2012:

We are still too many mavericks around our own ideas.

saying we are the best in the world and we can develop technology by ourselves and we don’t need the other ones to do so, thank you very much.

is too much fragmentation and not yet enough of a cluster

Engaging smaller innovators is a particular challenge – garage inventors can change the world, but the oil sands, which spends money by the billion, has not traditionally paid enough attention to that potential resource. They could be playing a role if they were given a chance and we could have more appetite to develop further startups

Now I work well down the ladder from Mr. Gires in the industry (I am not with an oil company), but I see some of the things he sees. First:

There are too many at various levels of organizations who are “wedded” to a given technology or idea and they throw roadblocks at anything that questions their ideas. Even when reason and logic show that the idea doesn’t make a lot of sense or that other options have better chances of success or improved economics it is nigh impossible to change their direction

The industry lives in fear of failure, at any scale. The fact is that the oilsands business didn’t get here by being risk averse or fearing new technology. Successful people and businesses are not those that fail the least – it is those who are least afraid to fail. If you are 5 for 5, that doesn’t mean you are better than 7 for 10, it means you were too safe and didn’t push your organization far enough. Just because something “sort of works” or it’s not too bad doesn’t mean you should stick with it because you are afraid the next idea won’t work at all. Remember that every time something doesn’t work we learn from it – the next technology or execution strategy isn’t invented from whole cloth and it has vast risks of failure. Each step taken should try to account for all the things we’ve learned don’t work so well. The tendency to fall back on what we did last time is dangerous and prevents improvements, whether they be technical, economic or environmental. Yes, big failures are bad and risk needs to be managed carefully at that level – but small risks need not be avoided entirely or else you miss out on the opportunity to improve.

The owner organizations have been bloated with teams who are not focused on the core business of those organizations – which should be operating facilities and learning what works and doesn’t work. They should be piloting new technologies in their facilities to find the next step change in improving the operations. They should get out of the business of executing capital projects. There are firms who have specialized in that for over a century. They should get out of the business of trying to invent technology themselves. Let the equipment vendors, universities, and garage inventors do that. Help fund them, but stop trying to to compete with them and don’t discount them just because you’ve never heard of them or they don’t have the educational or business pedigree. The one area the oils companies should be involved with R&D is on the subsurface because you have the asset with which to experiment. Work with the drilling community, downhole equipment suppliers and your own subsurface professionals to identify the best ways to get the oil out of the ground.

Owner organizations also need to cut bureaucracy – they are often as difficult to navigate as the government. The procedures that these firms have put in place to solve problems have often, like government, created a mess of unintended consequences that drive up manpower demands, costs of capital projects, costs of maintenance and drive down economic returns. It has been said by many in the industry that many of these companies make money in spite of themselves. I laugh whenever an environmentalist talks about the conspiracy inside oil companies to make money at the expense of everything else. They spend a huge amount of time and money on the environmental and social issues (rightfully), but if they really put their minds to it I think they could make more money…